Europe stocks steady to lower Friday

SAP soothes on sales; Carrefour, L'Oreal disappoint

EmilyChurch

LONDON (CBS.MW) - European stocks edged lower Friday as cautious comments on sales from two French companies underpinned the concerns over sluggish consumer spending in the core eurozone countries.

An upbeat assessment on the economy from General Electric lifted the stocks from the day's lows, but it wasn't enough to propel the top indices higher as markets ready for the second quarter earnings season.

SAP
SAP, -1.52%
Europe's largest software developer, further bolstered sentiment by announcing revenue in the second quarter would just top the average analyst estimate.

The outlook sparked shares of the group, a component of Germany's leading DAX-30 index. SAP, and other European software makers, had come under pressure this week after several U.S. rivals warned of a late June quarter sales slowdown this week.

The German DAX Xetra 30 index (1876534) was held down 0.2 percent at 3925. The French CAC 40 index (1804546) ended down 0.1 percent at 3,668. London stocks were showing small gains. See London Markets

Software revenue is expected to rise 15 percent to 495 million euros ($612.8 million). "Given the series of pre-announcements in the industry during the past week, SAP decided to release this preliminary information," the Germany-based software giant said in a press release. Full results will be revealed on July 22.

Continental consumer caution

French supermarkets giant Carrefour (012017), after the close Thursday, said it's not likely to hit its target for a 6 percent growth in sales this year amid flagging sales in the home market.

Shares of French cosmetics group L'Oreal (012032) dropped 4.4 percent - also impacted on concerns over sales.

The sales picture wasn't a surprise to the markets, but it underlined the continued pressure on profits for many European companies as domestic demand remains subdued. A growth upswing anticipated in the largest European economies this year is being mainly driven by exports.

"What you really want to see is more evidence from countries in the core of Europe that consumer demand is coming up. We're not really seeing enough of that, especially in Germany," said Bernard McAlinden, strategist at NCB brokers in Ireland.

Earlier this week, an influential German economic institute, the DIW, raised its 2004 and 2005 GDP growth forecasts for Germany, citing export growth. The DIW expects GDP at 1.8 percent this year and 2.1 percent in 2005.

Carrefour, with 10,618 stores, now expects 5 percent growth in group sales, before any currency-related impact. The retailer's second quarter sales rose 3.5 percent, includes currencies, to 19.78 billion euro ($24.3 billion). Shares rose 0.8 percent in Paris after steadily building in the afternoon.

"The 800 million euro shortfall in sales at French hypermarkets cannot be fully offset by interest charges and taxes. In any event, 2004 results will once again prove to be mediocre," SG Cowen said. The broker cut its forecasts for sales organic growth of 4.7 percent against an earlier projection of 5.8 percent and cut its earnings growth expectation to 7.3 percent from 10.4 percent.

L'Oreal after the close posted worse-than-expected comparable sales growth of 7.5 percent in the second quarter. Analysts, on average, had been looking for growth of 9.7 percent, brokers said.

L'Oreal indicated the miss came in the home markets. "In Western Europe however, consumer spending was sluggish in several countries, including France, Germany and Italy. The revival in the consumption of Luxury Products was held back by stock reductions in selective distribution channels," it said. The group affirmed its sales and earnings targets for 2004".

Earlier this week, German consumer products major Henkel KGaa (604840) also lowered its sales projection for the year, citing weak demand.

Goldman Sachs downgraded its rating on the detergents maker to 'in-line' overnight. The broker cautioned that sales growth "in the household products and personal care markets remain difficult and we are not convinced that (Henkel) is adequately addressing the threat of private label products and increased competition." Shares were down 2.5 percent in Frankfurt in afternoon trade.

Henkel on July 6 lowered its sales growth outlook for the year to around 2 percent, citing an "ongoing sluggish demand in Germany in the consumer markets relevant for Henkel has spread to the other European markets in the past few months."

Shares of the German DAX-30 stock were down 6.8 percent since the warning, as of Thursday's trade. Shares were down 0.7 percent in the opening Friday trade.

Oil price concern

August crude closed above $40 a barrel for the first time in five weeks Thursday on the New York Mercantile Exchange amid terror risks in the U.S. and modest changes to last week's crude inventories. Threats of a terror attack in the U.S. was also said to have bolstered the futures. See U.S. Markets overnight

The benchmark NY crude was last down 15 cents at $40.18 a barrel.

The higher oil price, if maintained, could keep inflation in the eurozone above 2 percent into the first half of 2005, European Central Bank President Jean-Claude Trichet said. The ECB, unlike its counterparts in the U.K. and, since last week, the U.S., has not lifted interest rates to counter a future inflation threat.

"Although oil prices have fallen over the last few weeks, markets expect them to remain high for some time to come. If this were to occur, inflation rates would most likely remain above 2 percent for longer than was expected this year and, possibly, in the first half of next year," Trichet said, AFX News reported in Paris.

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